2021 (11) TMI 1123 - AT - Income Tax

Benefits of principle of mutuality - As per AO activity carried out by the assessee is not a charitable one and the assessee is earning heavy surplus by charging the members as per its discretion and is indulged in transactions with non-members which vitiates the principle of mutuality on the first place - HELD THAT - AO denied the benefit of concept of mutuality by taking view that the department has already filed against the earlier decision of Tribunal in various years. CIT(A) allowed relief to the assessee by following the decision of Tribunal in assessee s own case for earlier year - We note that assessee s own case for AY 2010-11 2018 (3) TMI 1983 - ITAT SURAT the co-ordinate bench of Tribunal while following the order in earlier year accepted the status of assessee as a mutual association in order 2018 (3) TMI 1983 - ITAT SURAT - No contrary facts or law is brought to our notice to take other view. Thus, we affirm the order of Ld. CIT(A) - ground No.1 raised by Revenue is dismissed. Disallowance of depreciation by not reducing the contribution of members for acquisition of assets while computing depreciation - We find that in earlier year on similar submission of parties the authorities below recorded that the assessee is also getting services from nonmembers which has to be taxed accordingly. However on disallowance of depreciation, it was held that there is principle of mutuality in case of assessee, therefore, the allowance of depreciation has no bearing as the principle of mutuality was accepted by Tribunal. However, the issue was remitted back for limited purposes with the following direction in 2018 (3) TMI 1983 - ITAT SURAT - ground No.2 raised by Revenue is allowed for statistical purposes in above terms. Disallowance of loss on sale of fixed asset and deleting the addition on account on account of late payment of TDS and penalty charges respectively - HELD THAT - We find that Assessing Officer disallowed the expenses on account of loss on sale of fixed asset and interest on late payment of TDS and penalty charges. CIT(A) allowed relief to the assessee by taking view that the assessee has not claimed deduction of such items. We find that assessee has not claimed deduction of such claim on the basis of principle of mutuality. The Ld. CIT(A) accepted the contention of assessee that once the expenses is not claimed as the deduction of no disallowance is sustainable. Ld. CIT(A) has accepted the contention of the assessee that no disallowance was claimed is permissible. Thus, we find that order of Ld. CIT(A) is affirmed.

Summary

Issues Involved:
1. Treatment of concept of mutuality in assessing business income.
2. Disallowance of depreciation on assets.
3. Disallowance of loss on sale of fixed assets and late payment of TDS and penalty charges.

Issue 1: Treatment of concept of mutuality in assessing business income
The case involved appeals by the Revenue against the orders of the Commissioner of Income Tax (Appeals) for two assessment years. The Revenue challenged the allowance of benefits of the principle of mutuality to the assessee, arguing that the activity carried out was not charitable and the assessee was earning a heavy surplus. The Revenue also contested the deletion of additions made on various grounds, including disallowance of depreciation and late payment charges. The assessee claimed to be a mutual association exempt from certain charges. The Assessing Officer denied mutuality, treating the charges as business income. However, the Commissioner (Appeals) accepted the concept of mutuality and reversed the treatment of business income. The Tribunal affirmed the Commissioner's order, citing previous decisions supporting the assessee's status as a mutual association.

Issue 2: Disallowance of depreciation on assets
The Revenue challenged the disallowance of depreciation by not reducing the contribution of members for asset acquisition while computing depreciation. The assessee argued that member contributions were shown under liabilities and utilized for asset acquisition, hence not reducible from the asset cost. The Tribunal considered previous decisions and directed the Assessing Officer to verify if outsiders were receiving services, but allowed depreciation based on the principle of mutuality. The Revenue's appeal on this issue was allowed for statistical purposes.

Issue 3: Disallowance of loss on sale of fixed assets and late payment charges
The Revenue contested the deletion of additions on account of loss on sale of fixed assets and late payment of TDS and penalty charges. The assessee clarified that no deductions were claimed based on the principle of mutuality. The Commissioner (Appeals) accepted that no deductions were claimed, leading to the deletion of these additions. The Tribunal affirmed the Commissioner's decision, stating that no disallowance was sustainable as the expenses were not claimed as deductions. Consequently, the Revenue's appeals on these grounds were dismissed.

In conclusion, the Tribunal partly allowed the Revenue's appeals, addressing issues related to the treatment of mutuality, disallowance of depreciation, and other expenses, based on the concept of mutuality and previous decisions.